1. Acme Corporation has a bond maturing in 2025 with a 5% coupon rate, payable semi-annually. The bond is currently selling at a price which reflects a yield to maturity of 5.4%. (Indicate True or False for each statement.) (9%)
a) The bond is selling at a discount to face value
b) The bond is selling at face value (par)
c) The bond is selling at a premium to face value
2. Consider Acme Corporation’s bond above. The coupon payment on a bond with a par value of $1,000 is: (check correct answer): (5%)
a) $50 paid once each year
b) $54 paid once each year
c) $25 paid twice each year
d) $27.00 paid twice each year
3. A bond’s spread over a comparable Treasury issue has changed from 2.5% to 3.8% over the last year. Check the correct answer below regarding the most likely signal it sends about the default risk of the issuer.
The default risk has increased
There is not sufficient information to determine whether the default risk has changed
The default risk has decreased.
The default risk has not changed